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Issues involved: Appeal against order u/s 263/143(3) of the Income-tax Act for disallowance of bad debts claimed by the assessee in the assessment year 2001-02.
Summary: The assessee, engaged in share broking, claimed deduction for bad debts in the profit and loss account due to non-recovery of debts from clients. The Assessing Officer disallowed the claim under section 36(1)(vii) as the debt written off was not shown as income in earlier years. The Commissioner of Income-tax (Appeals) upheld the decision. The Tribunal considered the nature of the business and allowed the claim as a business loss under sections 28, 29, and/or section 37(1) of the Income-tax Act. The Tribunal noted that the loss occurred in the normal course of business and was incidental to share broking activities. The genuineness of transactions and efforts for debt recovery were not questioned. The Tribunal distinguished between bad debts and business loss, allowing the latter without the condition of showing the amount as income in earlier years. Citing precedents, the Tribunal held that the amount written off as bad debts due to clients' failure to pay for shares is allowable as a business loss. The Tribunal reversed the lower authorities' decision and allowed the appeal of the assessee. In conclusion, the Tribunal found no merit in the disallowance of the business loss claim and allowed the appeal of the assessee.
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